Tuesday, August 30, 2011

In the first months after the genesis block was created, Bitcoin kept a pretty low profile. During that time, anyone who came across Bitcoin was faced with many days of research before they could even somewhat understand Bitcoin and what it could possibly mean for not only the Internet, but the future of financial transactions.

People discovering Bitcoin these days have resources to turn to that can explain Bitcoin in layman's terms, including BitcoinMe.com and of course, The Bitcoin Show, both created and hosted by none other than Bruce Wagner - arguably Bitcoin's most famous spokesperson.

While taping the next few episodes of his show in Japan, Bruce generously set aside some time to speak with Bitcoin Trader. We discussed the very beginnings of his association with Bitcoin, his current projects, and some very interesting points on Bitcoin's prospects.

BT: Bruce, thank you so much for taking time out of your busy schedule to talk with me. My first question, while straight-forward, is sometimes the most difficult to answer: who is Bruce Wagner?

BW: Hmm... that is a difficult question. How much time do we have again? (laughter) I feel like I've lived many lifetimes. One of the handles that I use is Punlman. PUNL stands for Pure, Unconditional, Non-judgemental Love - it's my philosophy, and also the theoretical title of a book I may write one day. That's who I try to be.

"Our mission statement at OnlyOneTV is to help as many people as possible in the most profound way possible. Everything we do - we try to make sure it adheres to that philosophy."

I'm most known for, at the moment, being the CEO of an Internet TV Network, OnlyOneTV.com. The Bitcoin Show has been the most successful of our shows, and we're in the process of rolling it out in 10 additional languages, 11 altogether. Most of the other hosts will be in New York, though some will be using Skype. A while back, we put the word out that we were seeking hosts, which we still are, actually; we've got about half of what we're looking for. We're looking for people who are Bitcoin enthusiasts first and foremost, but who have the language skills we need. I think it's really important that it's available in other people's tongues. OnlyOneTV is a global network, and Bitcoin is a global currency. Our mission statement at OnlyOneTV is to help as many people as possible in the most profound way possible. Everything we do - we try to make sure it adheres to that philosophy.

BT: How did you find out about Bitcoin and why are you and Bitcoin such a great match?

BW: It was on Twitter; I had 12 to 13 thousand followers at the time. I tweeted something about the Fed, I don't remember the specifics, and someone responded that I should check out Bitcoin. I thought, "Okay, what's a Bitcoin? How is it different from PayPal, or MoneyBookers?" The person took the time to patiently answer my questions, so I decided to check out the link he gave me - this was October 2010. "Fine," I thought to myself, "I'll click the link." As I read, I was amazed, I thought "is this real, is it possible?" I even found out that there was already a market - an exchange - MtGox. I saw this had real potential, this was cool.

"Bitcoin was my crystal meth."

What happened then, as is often the case with many geeks, is that I become immersed, obsessed even. For the next four or five days I barely ate or slept. It was like those commercials you see where they say "this is a normal person, and this is a normal person after two months of smoking crystal meth." Bitcoin was my crystal meth. Learning about it was blowing my mind - the more I learned, the more I needed to know. I then realized, what this needed was a good explanation. I had a website up in less than 24 hours. Once it was up, I had people in the online community verify my facts; I got feedback and fine tuned it. The site took off like a rocket. It was the first time Bitcoin had been explained in simple layman's terms and within two to three weeks, volunteers had translated it into 12 languages. It was really popular and I felt I was doing something good for humanity, which is what I'm all about.

Every once in a while, I'd get a request from the media for an interview with Satoshi, like they thought I somehow represented him. He was there, participating in the forums until April of this year, though I never saw him reply to an interview request. My response was no, he doesn't do interviews. Gavin was around then as well, and he did some interviews, but then they somehow found me. People thought, because of BitcoinMe.com, that I was the official rep of Bitcoin. I had to explain to them that I was not the official rep and definitely not an expert on Bitcoin, but they couldn't get a hold of Satoshi so they interviewed me. Radio, newspaper, television, magazines, you name it. I don't think there's one major financial newspaper, magazine, or global TV network that hasn't interviewed me over the last three to four months.

So, going back, my partner and I were in the process of launching OnlyOneTV. There was no Bitcoin Show yet, and we were about to launch 27 shows. One day, he got frustrated, telling me all I did was sit around and talk about Bitcoin. Since I was already getting paid to talk, I thought, "maybe we should make a Bitcoin show?" We did one episode and instantly got four new sponsors, so I decided to go from a weekly to a daily show, about five a week. We then got 14 new sponsors! What this showed me was that there was huge interest in Bitcoin. We were the only Bitcoin show, and advertisers needed to reach our audience. That brings us to the present day.

BT: Organizing the Bitcoin Conference was an inspired idea. Now that it's all over, looking back, what was your favourite moment at the conference?

BW: My favourite moment - wow - there were so many really. The speakers were my good friends, so I had already heard what they had to say, not to say that they weren't all excellent. I think my favourite moment of all was addressing the whole group - my opening speech - I could feel their love and enthusiasm for being there. I was just reiterating what they already knew, that this was exciting - it was the first Bitcoin conference and we were making history - like the first meeting between the guys who started the Internet, or Facebook.

The conference was not a press conference - it wasn't about the media or educating the public. The reason we had it was to get users, developers, start-ups, and entrepreneurs to network with each other. The private meetings, the breakout groups, the pre-conference and post-conference meetings - those were the best. They brainstormed and exchanged contacts, and they're working together now because they met each other in person and developed those relationships - all these great minds all over the world are working on the infrastructure that's needed.

And the media is just incredibly interested. Meze Grill was one of our first sponsors, and they've had everybody in there. Reuters, NPR, CNN International, Al Jazeera English, every major media outlet has gone through there, and the owner - he's blown away.

"Once these hurdles are dealt with, Bitcoin will roll out as fast as Facebook has."

The fact that the media is so interested - it's very telling. The media is interested because the public is so interested. Whatever their opinions are, whatever their bias, the fact is, it's very interesting - nothing like this has ever existed before. You could almost say that electricity was invented, then the Internet, and now Bitcoin, like those are the three major breakthroughs.

Bitcoin is more complex and feature-rich than most Bitcoiners even know. We've discovered scripting, which we'll be covering on our show - it's very powerful. It's also scalable - any new cryptographic algorithms can be used with Bitcoin - it's forward compatible - it's really brilliant. As people get more educated and familiar with Bitcoin, they're going to get even more excited.

I've been saying that the three major hurdles for Bitcoin are security, liquidity, and currency risk, and all three problems will be solved in three months, maximum. Once these hurdles are dealt with, Bitcoin will roll out as fast as Facebook has.

BT: Bruce, since the middle of June, Bitcoin has been in a bit of a lull. You see it on the forums, you see it in the trading. I mean, in terms of market-cap, if you will, it's just been flat or decreasing. Do you think that's a problem? What's going on?

BW: Here are the facts: we are in the wild wild west days of Bitcoin. It's a new frontier, new technology. People are realizing that it's not like email - it has to be more secure. The transactions can never be reversed like a credit card or PayPal, and you don't always know your customer.

It's like having a bag of gold on your hard disk, and people can't wrap their minds around it - it's not like having normal files or documents - a stolen backup compromises the original as well. It's tricky to secure it - even experts have lost enormous amounts by accidentally making mistakes with their security and backups; because of that, there have been disasters.

In the literal wild wild west, there were wildcat banks - people who went into a tiny town, and put up a sign saying "bank." After a few months or years, they would just be gone with the money. That's what happened with mybitcoin - you remember my notorious episode 33 - it's an unfolding story and it's not over. It was a big fraud, and they stole millions of dollars from thousands of account holders, systematically, since the start. It's about trust, and this long-standing entity turned out to be not the one to trust. January 2009 was the beginning of Bitcoin. By April 2009, mybitcoin.com was registered, and by June or July it was running. It was older than MtGox; it was the oldest institution in the Bitcoin world.

There were problems with customer support, they weren't replying. And they had a setup where if you lost your password, you weren't getting it back - there was no "forgot-password" feature. We figured that was their business model - you lose your password and they take your Bitcoins - a big screw you. The owner of mybitcoin was anonymous but it didn't raise any red flags because at that time, the entire community was anonymous. I was one of the first people, if not the first, and of course Gavin, that used a real picture on the forums.

They gave us no real reason to suspect them. A lot more people than willing to admit have lost Bitcoins to mybitcoin. I'm not so sure I was the largest depositor - I think the others are just too embararssed to admit what's happened to them.

Going back to your original question - the big bank heist has scared people away. The price is just bobbing along, and it's understandable. Non-tech people were selling like crazy and running scared - you can't blame them - all they knew was people got scammed - and they didn't know the difference [between a website problem and a Bitcoin problem]. The tech-savvy people were buying like crazy, but now the price has leveled off - they've invested all they've budgeted, and everyone who was running scared has sold. Bitcoin usually goes up, up, up, so when it's flat, in Bitcoin terms it's a "crash," but it's understandable due to the recent uncertainty.

"In three to six months, the software coming out will blow people's minds. Everything is going to change, in Bitcoin time."

For the three major problems that still exist, that I mentioned earlier, the solutions will be here in three months, tops. Once they're in people's hands, they'll spread like crazy, and the price [of Bitcoins] will go way up and interest will be hot like before.

BT: Is three months a ball-park figure or gut-feel? Do you know the people working on these projects with a three-month timeframe? Where do you get the three months from?

BW: People tell me lots - I'm privy to a lot of projects - some secret - some not. Almost every new start-up is trying to solve one of these problems: security, number one - protecting people from themselves and from outside theft; second, liquidity. It has to be as easy to buy a Bitcoin as it is buying a cup of coffee; third, currency risk. Merchants can't accept Bitcoin and then have it drop ten percent when they already have a razor-thin profit margin; there has to be a way to guarantee they don't take currency risk.

It's exciting because it's happening fast. So many bright minds are invested emotionally, philosophically, technologically, and financially. In three to six months, the software coming out will blow people's minds. Everything is going to change, in Bitcoin time.

---Bruce Wagner is the CEO of OnlyOneTV, owner of BitcoinMe.com, and host of The Bitcoin Show. He resides in New York City, and we caught up with him in Tokyo, via Skype.

Monday, August 29, 2011

Just a heads up that I have two more exciting interviews lined up for your reading pleasure.

This week, I catch up with Bruce Wagner in Tokyo, Japan, where he's taping the latest episodes of The Bitcoin Show for OnlyOneTV.

Later in the week, I will be chatting with Arthur Britto, Vice-President of Business Development for ExchB.com, the exchange that recently teamed up with Chase and Wells Fargo, giving its users the ability to clear deposits overnight; a huge improvement over its competitors.

I look forward to hearing about their Bitcoin ventures, as well where they both believe Bitcoin is headed. Stay tuned!

By now, you've probably heard of one or two online retailers that sell their goods for Bitcoin. Some sites were already in existence before Bitcoin and have chosen to start accepting Bitcoin as an alternative form of payment. Other sites were created based on a business model that works on a Bitcoin-only payment system.

As these sites continued to roll out over the last few months, I began wondering to myself: are they really charging less because they're doing business in Bitcoin, or are they just trying to pull a fast one on us Bitcoin enthusiasts, blinded by our Bitcoin-induced euphoria?

As a quick test, I headed over to searchbitcoin.com and began clicking on random products that came up in the live feed. I then compared the Bitcoin prices to the prices found over at Google Product Search. I didn't necessarily pick the lowest price out of the Google search; I picked the more "common" price. Sometimes Google might show you a really low price, but chances are there's a catch to those lower prices. They may be used goods, or have outrageous shipping fees. I figured, by choosing the most common price, I was getting a more realistic price.

Here are the results of my quick survey:

Red prices are the prices that are higher for customers paying in Bitcoin than for those paying in USD at a regular online store. The USD prices came from the Google Search. Where you see an asterisk, that means there was no advertised price in Bitcoin, just a USD price that you could pay using Bitcoin.

While a sample size of five doesn't really count for much, I was just happy to see that some of the Bitcoin prices were lower.

There are other sites out there that specifically offer a discount when you pay in Bitcoin (as they should). I believe that will be the trend in the coming months - established online retailers choosing to reduce prices for customers paying with Bitcoin to account for the smaller transaction fees and the eliminated chargeback risk.

Sunday, August 28, 2011

Josh Strike is the founder and CEO of Costa Rica based online Bitcoin casino, Strike Sapphire. In this exclusive interview, he describes the entertaining path he has followed to get into the online gambling business, the challenges he has faced getting there, and he gives us his insight into the future of Strike Sapphire and Bitcoin, with some interesting revelations.

BT: Where are you originally from, where do you live now, and what is your background in terms of education and previous employment?

JS: I was born in LA, but most of my family has lived in Las Vegas since the early '70s. I grew up around floor managers, pit bosses and bartenders, and I spent a lot of my childhood in the coffee shop at the Sahara, keeping track of my Mom's keno cards and wandering around the edges of casinos hiding from the Sheriff while my Mom played slots.

I started to think in terms of odds at a pretty early age. I remember stealing a bunch of keno cards so I could set up a game for my friends in third grade. Around the same time, my half brother graduated from Cal Poly SLO [California Polytechnic State University, San Luis Obispo] as a programmer, and gave me his TRS-80 Model 100 laptop from RadioShack, along with the original manual, which had everything you needed to know to start programming in BASIC. It had 16k of RAM, ran on AA batteries, and I took it everywhere, along with a tape recorder for saving programs. So I was sitting in Vegas, turning the odds on keno cards into little simulations when I was eight years old.

Later on, in 1995, I got a summer job doing graphic design for an ad agency in LA and worked that and a coffee shop job until the end of high school. I then moved to a crackhouse hotel on Jones & Geary in San Francisco and got a job in Web design, and taught myself Flash and PHP. After the bubble in 2000, I tried college for a year at Pratt Institute, but I'm not a big team player and organized education didn't agree with me. I was getting burned out on design, so I dropped out and became a cab driver for a couple years in LA. After that I drifted to New York and waited tables at the Carnegie Deli and Deluxe on Broadway, and dealt underground blackjack & poker games in Harlem and the Bronx all night. Finally I found myself broke in New Orleans after a bad three weeks of solid gambling, and took the train back to LA to start my life over.

Once back in LA, I got a job working for a guy who ran an instant postcard montage kiosk at a mall, and did Bar Mitzvahs, and worked for him as a speed-Photoshopper for about a year doing 20

montages an hour. He introduced me to his cousin who was starting a doggy daycare center in New Jersey called the Barker Lounge, and that's when I started coding again seriously. The Barker Lounge wanted a ton of original software written to manage the franchises they were planning, and I knew I could do it. Right about then my apartment got broken into and all my s--t stolen, so I made a deal with the owner of the company so I could get an advance and write the software from abroad, and my girlfriend and I moved to Argentina. That was the foundation of the Strike Agency, which is my day job. Since then we've worked and traveled across South America, New Zealand, Australia, Thailand, Vietnam, France and Spain.

BT: How did you get started in the online gambling business?

JS: I guess I came by it honestly, but I'm definitely an outsider in the business, to put it mildly. About 3-1/2 years ago in New Zealand, I was the only coder on contract for the now-defunct sexypolitics.com, which was this video strip quiz site about the 2008 elections. It ended up getting bought out by Fox, who shelved it. I sat down to think about what to do next; I wanted to start my own site, and I compared a bunch of different business models.

I couldn't get past the allure of gambling. I knew it would be hard to satisfy the legal regulations, but it turned out I had no idea how hard that would actually be. I just happened to have the time and money to sit down and do something for myself, so I started writing a casino. I had the basic framework for Sapphire and a working blackjack and poker game in about six months; after about a year I had ten games. I started beta testing, ironed out a lot of bugs, and by the end of year two we had about 15 games and a couple of lawyers on board, and I thought we were ready to open for business.

I actually thought it was as simple as incorporating in Costa Rica, staying away from US players and signing up with some payment processors. Man was I wrong. Online gambling is a tight club, and they aren't accepting members - ever. Pity the fool that wanders into this naively. You've really got to do something unique to break into the club. I spent a year talking with lawyers and investors and payment processors, trying to get things working. The bottom line was, we probably couldn't have launched it for less than seven figures. And then along came Bitcoin...

What's been awesome about Bitcoin is, we get to start small and focus on the software. We can test the system, train employees, learn day-by-day how to run it, and be making enough to prove the concept from day one, without breaking any laws anywhere or exposing ourselves to more risk. And it's completely possible that in a year or two we could actually bootstrap it to other payment methods, without ever paying to buy into their club, and they'd be scrambling to catch up with us in the Bitcoin market. That's how I'm thinking, and I love the idea.

BT: How difficult was it to write the software?

JS: I wrote it, and rewrote it, and rewrote it. It's about 500,000 lines of code, front and back, and I know every line by heart. I don't think it could've been written any other way. One of my heroes is Chris Sawyer, who wrote Roller Coaster Tycoon back in 1999. He is supposedly the last person to publish a game that is completely written by one coder. I wouldn't compare myself to him because he writes in Assembly and he's a complete genius, but I've always believed in the DIY ethic.

BT: Are there any additional features coming to Strike Sapphire?

JS: Yes. I'm adding new features constantly, and soon I hope I'll be adding coders who'll be adding more features. Since we launched, I've brought in lobby chat, special FX for VIP players when they win, and improvements to a lot of the underlying systems for smoother performance in a lot of games. But more than anything else, I want to focus on inventing new games. So far, I think Mayan Gold, Sixty Watt Slots and Sapphire Keno are our most original, but there are about six more I've got on paper right now that'll seriously blow people's minds. I just need some spare time, because suddenly I'm deep into casino management and expansion and trying to train up new employees.

BT: Why should I gamble online at Strike Sapphire vice other Bitcoin casinos?

JS: Well, I could give you a stock answer but I guess, if you dig it, do it. I think the fact that all our table games are multiplayer gives us an advantage in the community because people can play and

meet each other. Right now, we're the only truly legal complete casino with a full spectrum of original games, with an actual corporate structure and lawyers; what you kind of expect from an online casino. As far as I know, we're the only one that isn't based in the US, and we're also the only casino in the world running our software. I'm hoping the software, and the atmosphere, will be the two biggest draws to players. We really try to keep things chill and friendly, and get to know our players personally. It's a very social, chatty casino. One guy accused me of running a tea room instead of a poker room!

Also, we do things with a level of transparency that no other casino does, like showing every single blackjack shoe and publishing our randomness reports every day. I'm not going to hammer on the bonuses or freerolls or whatever, because every casino has stuff like that, and honestly ours aren't as loud and splashy as others. But with us you know what you're getting. I think people should just check out all the sites and decide for themselves if we're better.

BT: Do you have any other projects in the works?

JS: (laughter) I'd like to build a 14-foot-wide version of Mayan Gold and put it in the Luxor, but I had a fight with the architect, and I'm kind of full up right now anyway...

BT: What sorts of projects would you like to see developed for Bitcoin?

JS: Anything that makes it easier to transact through Bitcoin is a good thing for the currency, and a good thing for us. I think the biggest hurdle is exchange, so I love the ATM concept, and the green address idea; we'd love to work with that. If you have a larger volume of generic, day-to-day transactions going on all the time, the market will stabilize and you'll have less volatility, less speculation. I think bootstrapping Bitcoin as a global currency is going to be a two-step process, and step one is stabilizing it as a medium of exchange between other currencies - a cheap way to get money online and send it to someone who can withdraw it. The second step is we have a completely functioning Bitcoin economy where you don't need the exchanges, and then the doors come off. Step one seems to me a prerequisite to step two, so we're happy to be helping with that.

BT: ...so I guess you think Bitcoin has a pretty bright future!

JS: I think it has an extremely bright future, and I'm not the only one. One of my partners in this project, who contributed to our initial float investment, was a co-producer on two of the three best-selling video games of all time. He prefers to remain anonymous so that's all I'll say, but it was my decision to go with Bitcoin that convinced him to get into it. Another friend of mine who works for Yahoo in a senior payment-related role has been asking me about Bitcoin too. People are curious. I think it needs to gain critical mass, and part of that is going to be ease of use, including ease of use as a simple exchange instrument without having to hold it or worry about it going down.

Another important thing is showing that the community can police itself so that Bitcoin doesn't end up being a medium of exchange for mostly illegal businesses. That's one reason we try so hard to be compliant with US laws, and I wish other casinos would see that it's in their best interests to do that too.

I think Bitcoin will go through a period of increased hardship as governments crack down and a lot of the sites you see now are targeted for illegal activity. All that's an excuse for governments to demonize the currency, to delegitimize it. But in the end, I don't think governments can actually shut it down. And if more legitimate sites pop up that have nailed down what we have - basically a plan for working within the system at the early stages, keeping it legal, hedging Bitcoin risk and just using it as a free way of receiving payments - then an explosion of Bitcoin value could happen pretty fast. That explosion has the potential to radically change the world.

Let's take a look at costs incurred through what I will call a "Bitcoin Business Cycle" for a merchant using a MtGox and a Paxum account, versus a merchant doing business with a typical credit card company.

Assumptions:

I'm using the MtGox market rate at time of posting ($8.88/BTC). In this example, the merchant uses the Paxum Mastercard and withdraws from his account by ATM, once per month over the course of a year. I'm also assuming that over time, a merchant will be able to average out their profits and losses when converting their BTC to USD, such that no additional costs are incurred. I can see how this would be a controversial assumption, but as a Bitcoin trader and investor, I believe a savvy merchant should actually be able to avoid losses on their conversions, especially when using a deflationary currency like Bitcoin (this concept will be more obvious as Bitcoin really starts to catch on). There are already merchant service providers, like bit-pay that charge additional fees (2%, at last report) to absorb the conversion risk, which basically wipes out most of the benefit of using Bitcoin as a merchant.

The "Bitcoin Factor" is the ratio of credit card fees to Bitcoin Business Cycle fees. At today's market rate, and using the transaction services cited in my example, anyone doing more than 404 BTC in business is already saving money by accepting Bitcoin. Anything more, and a merchant saves more (because many of the transaction costs are fixed). I haven't even considered the cost of chargebacks, which don't exist in the Bitcoin realm.

Of course, there are already many other ways to convert your BTC to cash. If you're not in a hurry, you could even get the USD mailed to you in the form of a cheque and save the cost of using a Paxum Mastercard and ATM. I haven't looked at Dwolla's fees, but they might be even lower.

In a perfect world, a merchant would be able to cover his costs in BTC and not incur ANY additional fees beyond the 0.0005 transaction fee, but certain costs will inevitably remain payable in cash only (taxes and utilities, for example).

In conclusion, every merchant setup is a little different. Whether or not it is beneficial to accept Bitcoin will depend on the services used and the volume of transactions accepted. I hope that I've shown, however, that overall, there is a benefit for merchants to accept Bitcoin.

If anyone wants to use my spreadsheet to make their own calculations, here it is.

Though many "financial experts" are quick to dismiss Bitcoin, the fact of the matter is, the infrastructure hasn't yet been constructed to take advantage of one of the biggest benefits of using Bitcoin: moving money internationally for next-to-nothing.

For the thousands of Filipino workers in Canada who send money home to support their families, a huge percentage of the money they earn is lost to transaction fees. A quick look at Western Union's fees, for example, shows that it would cost someone 10 CAD to send 100 CAD to the Philippines - an instant 10% loss!

Unfortunately for both Mexicans and Filipinos, there are no Bitcoin exchanges in their local currencies, so they're stuck paying immense fees to send money home.

Even if currencies are deposited into a Bitcoin exchange, converted to Bitcoins, sent to another exchange, and converted to another currency, the fees we're seeing charged by the major Bitcoin exchanges are a small fraction of the 10% charged by Western Union in the example above.

The very recent announcement of a Kenyan Bitcoin exchange is a signal to the world that a need exists in the developing world for a medium of exchange like Bitcoin. How many Kenyans work in the United States or Europe that have a hard time sending money home?

How far away are we from seeing Filipino and Mexican exchanges? I guarantee we'll see both in less than a year. Mexicans are searching for Bitcoin. Filipinos are searching for Bitcoin. The need is there. The demand is coming.

Give Bitcoin a chance to lay down some infrastructure, come back in a year, then check the value of a Bitcoin. Adios!

While I am a Bitcoin trader, I am also a Bitcoin investor, as I have both short-term and long-term positions in Bitcoin (at about a 1:3 ratio). As an investor, I enjoy reading about some of the up-and-coming projects that will help make Bitcoin more mainstream and user-friendly. Let's take a look at some of the more interesting publicly-known projects:

1) Point-of-Sale (POS) Devices

At the moment, the average, or even the technologically adept business owner, is going to have a hard time accepting Bitcoin at a brick-and-mortar business without setting up a cumbersome interface that only hardcore early-adopting Bitcoin enthusiasts would ever use. MtGox's POS device, which we can safely assume would be integrated with the exchange, will allow for easy transactions through the use of a smartphone and a system that looks familiar to anyone that has ever conducted a credit-card transaction. The business owner could then instantly sell the Bitcoins on the MtGox exchange if they so desire, thus minimizing risk.

Instawallet, while not an exchange, is introducing an approach to Bitcoin payments that will do away with the delay associated with waiting for transaction confirmations. Green Addresses are an elegant solution to a problem which still irks Bitcoin users. When making a transaction, recipients usually choose to allow for the blockchain to increase in length by a certain amount (anywhere between one and ten blocks, depending on how paranoid they are) before they can be sure that the transaction is valid, and a double-spend cannot take place. A "Green Address" is a wallet that is known and reliable. Instead of waiting for confirmations, a merchant can simply verify that the source wallet is a Green Address and accept the transaction instantly. Implementation is not completely straight-forward, but Instawallet (and probably others) is working to make it happen.

3) Bitcoin ATMs

Todd Bethell, of Irvine, California, has introducted the first Bitcoin ATM. His company plans to roll-out two hundred ATMs over the next year, at locations all over the world. The importance of this technology is that it allows for EASY cash purchases of Bitcoin. It is still quite difficult, in some countries, to purchase Bitcoins through an exchange. With the Bitcoin ATM, it has suddenly become easy for the average person to buy Bitcoins, an important step toward making Bitcoin mainstream.

---

Bitcoin will really shine when the cost and effort involved in using Bitcoins becomes significantly less than when using fiat currency. The projects discussed above will go a long way toward making that a reality.

Friday, August 26, 2011

While none of the Bitcoin exchanges could ever be considered "liquid" by the usual financial measures, MtGox is the most liquid of them all, with a 30 day volume nearly 20x larger than its closest competitor, TradeHill.

MtGox will, on occasion, consolidate its accounts into one Bitcoin address, which they did today. The size of its wallet, to say the least, is shocking. That's right; 2.3 million Bitcoins, or nearly a third of all Bitcoins ever mined.

Now, what can we surmise from this? Well, first of all, MtGox is a bigger player than any of us could have ever fathomed. Not only is it the largest Bitcoin Exchange, but it also the largest Bitcoin bank, absolutely crushing the number two bank, whomever that would be (maybe TradeHill?).

Second, if we look at the monthly volume at MtGox, it was only 1.2 million Bitcoins. That means that in the last month, a number of BTC traded hands that was only equal to half of the Bitcoins held by MtGox. Imagine if 10% of the Bitcoins held at MtGox moved in the same direction in one day! Theoretically, in an all-out sell-off, we could see a legitimate return to Bitcoins valued sub $1. To be fair, I don't see that ever happening, save for an announcement of a functioning Quantum Computer that can decrypt Bitcoin private keys, but we'll have much bigger problems than Bitcoin to worry about should that ever happen (you can kiss your online bank account goodbye as well).

Interestingly, the Bitcoins held at MtGox are likely held by investors. This tells us that the market is even more illiquid than previously suspected. An analogy could be drawn between these Bitcoin holders and a company's institutional investors, holding for the long run. If an important announcement were to be made, such as a major online retailer deciding to accept Bitcoin, we should expect Bitcoin's value to rocket to new highs within just a few days, or even hours. There simply wouldn't be that many Bitcoins available to be purchased.

Which direction will the Bitcoin roller-coaster go next? It's hard to say for sure, but you'd better hang on!

While I do not see any real value in alternative cryptocurrencies, they can definitely be of value for trading. I made a considerable amount of money trading Namecoin, IXcoin, and i0coin when they first came out, but saw diminishing returns each time as the trading peaks and valleys became less and less severe.

I'll have to admit that I got things wrong with Solidcoin. This new currency obviously had more appeal to speculators than IXcoin and i0coin. Expecting Solidcoin to be dead in the water within half a day, I didn't bother touching it. Something happened, however, to spur its rise to a value even greater than Namecoin's. I believe the drop in Bitcoin's price had something to do with it, as miners and speculators quickly moved over to this new investment opportunity. Will Solidcoin last? I really don't think so. While it apparently has some properties that make it more appealing than Bitcoin, what it doesn't have is the history and infrastructure to truly make it take off. I give Solidcoin two weeks *max* before it vanishes into cryptocurrency history along with its stillborn brothers, IXcoin and i0coin.

It's been an interesting week, both this one and last, as there was considerable excitement leading to the Bitcoin Conference hosted by Bruce Wagner in New York. After several weeks of price decline, the Bitcoin community finally found a reason to prop the price up after what could be described as a "crash" down to the $5 range. Unfortunately, the conference did not deliver on the anticipated media coverage, and within a couple of days, short-term speculators bailed on their purchases.

Today we've had some major price movement, touching a low of $7.64 from the nearly $12 high that was hit before the conference. Even though we're going into an infamous weekend, I do not believe we're going to go much lower - in fact, the low of $7.64 will hold through to Monday.